General Motors Loses $2.5bn in 3rd Quarter

07 November, 2008 11:46:00

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General Motors has reported a net loss in of 3rd Quarter $2.5 billion including special items and signalled it faces a liquidity crisis and burned through $6.9 billion in cash in the three-month period ended Sept. 30.

During the third quarter the turmoil in the global credit markets resulted in the worst financial crisis in more than 70 years. The upheaval has had a dramatic impact on the auto business in particular, especially in the U.S. and Western Europe.

Tight credit, rising unemployment, declining income, falling stock markets, and continuing deterioration in the housing market in the U.S., resulted in an abrupt halt in consumer spending, with most consumers exiting the vehicle market. Many of those still intending to purchase vehicles were denied financing, or found the cost of financing prohibitive.

The results compound the troubles of the Detroit 3, which are petitioning Washington for low-interest loans to survive plunging sales, a worldwide credit crisis and a weakening U.S. economy.

Ford today posted a $3.0 billion operating loss for the third quarter and told of further plans to cut costs and preserve cash as it braces for the global automotive downturn to worsen in 2009.

GM reported a net loss of $2.5 billion or $4.45 per share for the third quarter, including special items. That compares with a net loss from continuing operations of $42.5 billion or $75.12 per share in the third quarter of 2007, which included a non-cash charge of $38.3 billion to establish a valuation allowance against some of the company's net deferred tax assets.

On an adjusted basis, GM posted a net loss of $4.2 billion or $7.35 per share, compared with a net loss from continuing operations of $1.6 billion or $2.86 per share in the same period last year.

Revenue for the third quarter was $37.9 billion, down from $43.7 billion in the year-ago quarter, reflecting dramatic sales declines across the industry driven by unstable market conditions, instability in the credit markets and dramatic retraction in consumer demand, especially in North America and Europe.

GM recorded net favorable charges of $1.7 billion for special items in the third quarter. Included in the charges was a curtailment gain of $4.9 billion resulting from the UAW Settlement Agreement becoming effective. The curtailment represents the accelerated recognition of net prior service credits, largely relating to the 2005 GM UAW healthcare agreement, scheduled for amortization after January 1, 2010.

The curtailment was recorded because GM's UAW retiree health plan will not exist after January 1, 2010, and therefore no further basis for deferring unamortized prior service credits exists beyond that date. The $4.9 billion curtailment gain was partially offset by a non-cash $1.7 billion settlement charge related to the elimination of post-65 salaried retiree healthcare coverage, including the cost of increased pension benefits that were announced in July as part of GM's operating actions to improve liquidity as well as the recognition of accumulated deferred losses related to the healthcare plan.

In addition, GM reported charges of $652 million relating to its commitments as part of Delphi's bankruptcy proceedings, $251 million for impairment of investments in GMAC, and $641 million in restructuring-related and other charges. Details on these and all other special items are in the financial highlights section of this release.

GM plummeted 45.1 percent from a year earlier to 168,719 vehicles, worse than the forecast of a 41% drop. It was the lowest sales total at GM since December 1970. U.S. sales are down 20.4 percent through October compared with a year earlier.

GM has reduced capital spending plans for 2009 and 2010. The reduced spending, along with cuts to design, engineering and research budgets, could delay the launch of vehicles such as the Chevrolet Cruze, a fuel-efficient, small sedan that GM has touted as crucial to its turnaround effort.

The cuts will have no impact on the two high-profile vehicles — the Chevrolet Camaro and the Chevrolet Volt Extended-Range Electric Vehicle.